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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-24908
TRANSPORT CORPORATION OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1386925
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1769 YANKEE DOODLE ROAD
EAGAN, MINNESOTA 55121
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 686-2500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of shares held by non-affiliates of the Registrant as
of March 24, 1998 (based on the closing sale price of the Common Stock on that
date) was $88,500,313.
As of March 24, 1998, the Company had outstanding 6,679,504 shares of Common
Stock, $.01 par value.
Documents Incorporated by Reference: Part III, Items 10, 11, and 12 incorporate
by reference portions of Transport Corporation of America, Inc.'s Proxy
Statement for the 1998 Annual Meeting of Shareholders.
PART I
ITEM 1. BUSINESS
OVERVIEW
Transport Corporation of America, Inc. (the "Company" or "Transport
America") and its wholly owned subsidiary, Transport International Express, Inc.
("T.I.E."), provides a wide range of truckload carriage and logistics services
in various lengths of haul in the United States and parts of Canada. The Company
has designed its business to provide high quality, customized logistics services
that allow it to be a preferred partner or core carrier to major shippers. The
Company serves as an integral part of the distribution system of many of its
major customers, including 3M Company, Federal Express, Ford Motor Company,
General Mills, Hon Company, and Sears, Roebuck & Co. The Company's customers
require time-definite pick-up and delivery to support just-in-time inventory
management; specialized equipment, such as temperature controlled trailers,
special trailer design to support decking, multi-stop loading and unloading and
electronic data interchange services to automate the exchange of order and load
data. To support these complex customer requirements and deliver logistics
services cost effectively, Transport America has developed a sophisticated
information management system which it believes makes it a technological leader
in the industry.
The Company's operating strategy is to provide high quality,
customized logistics services that allow it to be a preferred partner or core
carrier to major shippers. The Company carries out this strategy by assigning to
each customer an experienced marketing representative to tailor its logistics
services; providing a wide range of transportation services, including
line-haul, multi-stop capability, regional and local operations, van trailers
with and without refrigeration or temperature control, time-definite pick-up and
delivery, satellite monitored transit; and information technology services. As
part of its mission to serve the logistics needs of its mostly Fortune 500
customers, and in an effort to address the needs of its drivers, Transport
America has implemented a regional operations strategy. With an advanced
information system, modern fleet of equipment, experienced management team and a
strong customer base, Transport America believes it is well-positioned to
achieve sustained profitability and growth in the future.
T.I.E. provides airport-to-airport less-than-truckload services in 30
cities throughout the United States. T.I.E., which commenced operations in the
third quarter of 1997, provides express services to air freight forwarders and
airlines.
CUSTOMER FOCUS AND SERVICES
The Company has designed its business to be a core carrier or
preferred partner to major shippers by providing high quality, tailored
logistics service. The Company serves as an integral part of the distribution
system of many of its major customers, including Ford Motor Company, General
Mills, DuPont, The Hon Company, and Sears, Roebuck & Co. Some of the Company's
other major customers are Federal Express, 3M Company, PPG Industries, Clorox
Company, and S.C. Johnson & Sons. The principal categories of freight hauled by
the Company are department store merchandise, grocery, industrial, consumer,
paper products, as well as a wide variety of other goods associated with
T.I.E.'s services to freight expediters.
The Company's largest 25, 10 and 5 customers accounted for
approximately 80%, 62% and 43%, respectively, of 1997 operating revenues. During
1997, Sears, Roebuck & Co. accounted for approximately 14% of the Company's
operating revenues.
MARKETING. The Company's marketing personnel seek to strengthen
Transport America's position with existing customers and establish it with
prospective customers by taking advantage of the trend among shippers toward
private fleet conversions, outsourcing of transportation requirements, and
utilization of core carriers. At December 31, 1997, the Company employed a
marketing force of eleven persons located throughout its primary business areas.
Senior management is also actively involved in marketing, logistics planning,
and customer relations, especially with large national customers.
SERVICE CENTERS. The Company utilizes strategically located service
centers to provide an added level of customer service and support. These
facilities are located in close proximity to major customer locations, thereby
enabling the Company to provide a large amount of equipment, local cartage
service, and local customer service representatives to work directly with
customers on a day-to-day basis. The Company believes these service centers
provide a competitive advantage by allowing it to work more directly and
frequently with customers and provide equipment more rapidly.
TIME-DEFINITE SERVICE. In each of its markets, the Company seeks to
provide 100% on-time pickup and delivery, expedited time-in-transit, logistical
planning to coordinate and deliver freight within time-definite parameters, and
advanced information capabilities that provide value to customers. Time-definite
transportation requires pick-ups and deliveries to be performed within narrowly
defined time frames. Time-definite services are particularly important to the
Company's customers who operate just-in-time manufacturing, distribution, and
retail inventory systems.
HUMAN RESOURCES
Transport America's human resources are an important element of its
customer focused business strategy. Employee drivers, independent contractors,
and non-driver employees regularly interact with customers and are ultimately
responsible for customer satisfaction.
In order for the Company to grow and continue to be positioned as a
quality carrier of choice for existing and new customers, changes to the
driver's work environment are necessary. The Company continues to emphasize
competitive pay packages, quality at-home time, and "driver friendly" freight as
principal means to attract and retain its driver workforce.
INDEPENDENT CONTRACTORS. The Company believes that a fleet of both
employee drivers and independent contractors is essential if the Company is to
continue its growth. In 1992, the Company decided to aggressively expand its
independent contractor fleet, which has increased from 14% of its total fleet at
December 31, 1991 to 33% at December 31, 1997. The decision to focus fleet
expansion on independent contractors was based on such factors as reduced
capital requirements, since independent contractors provide their own tractors;
the lower turnover rate that the Company has experienced with independent
contractors; and the strong emphasis on safety by independent contractors. As a
result of greater industry competition for independent contractors during 1997,
growth of the Company's independent contractor fleet slowed. Competition for
independent contractors is expected to continue for the foreseeable future.
The Company enters into operating agreements with its independent
contractors, pursuant to which its independent contractors agree to furnish a
tractor and driver to transport, load and unload goods on behalf of the Company.
These agreements typically have terms for less than one year and provide for the
payment to independent contractors of fixed compensation for total loaded and
empty miles. Independent contractors must pay all of their operating expenses
and must meet DOT regulatory requirements, as well as safety and other standards
established by the Company. The Company has implemented a bonus program to
encourage safe driving and good customer service habits.
DRIVER WORK ENVIRONMENT. The Company believes that the type of
freight it typically handles is a significant factor in retention of employee
drivers and independent contractors. Consequently, the Company focuses much of
its marketing efforts on customers with freight that is "driver-friendly" in
that it requires minimal loading or unloading by drivers and customer employees.
The Company utilizes late-model, reliable equipment including
standard features such as double sleeper bunks, extra large cabins, air-ride
suspensions, and anti-lock brakes. The Company also provides satellite
communications technology which enables drivers to receive load-related
information, directions, pay information, and family emergency information. The
Company's service centers are strategically located to provide services for the
driver, such as showers, laundry facilities, break-rooms, fuel, tractor and
trailer maintenance, and in-person assistance from service center personnel.
COMPENSATION AND BENEFITS. The Company's compensation and benefits
package has been structured to compensate drivers on the basis of miles driven,
with base compensation increases commensurate with length of service. Employee
driver benefits include paid holiday and vacation days, health insurance, and a
Company funded 401(k) retirement plan. Performance bonuses are paid based upon
safety, customer service and fuel consumption. The Company believes its
compensation and benefits package for employee drivers and independent
contractors ranks among the highest in the truckload industry.
RECRUITING AND TRAINING. The Company's employee drivers are hired
and independent contractors are approved in accordance with specific Company
guidelines relating to safety records, prior work history, personal evaluation,
accident and driving record verification, drug and alcohol screening, and a
physical exam. The Company's initial orientation and training seminar includes a
review of all Company policies and operating requirements, written and road
driving tests, defensive driving and safety skills, DOT compliance requirements,
and the employee driver's and independent contractor's role in providing safe
and efficient value-added service to customers.
In addition to the initial training seminar, on-going training on
subjects such as safety, compliance, equipment operation, customer expectations,
and Company policies is conducted at the Company's service centers and
periodically at outside training facilities under contract with the Company. The
Company also conducts driver meetings, publishes a newsletter, and conducts
specific professional development training, including training to become an
over-the-road driver instructor.
During 1997 the Company revised its training program to provide
enhanced training opportunities to student drivers who had limited over-the-road
driving experience, but who possessed a commercial driver's license. This
finishing school provides hands-on experience and classroom training
opportunities intended to establish a sound basis for a successful driving
career as well as familiarity with Company equipment and practices.
DRIVER AND INDEPENDENT CONTRACTOR SUPERVISION. The Company assigns
each employee driver and independent contractor to a specific fleet manager. The
role of the fleet manager is to be the primary support resource for the employee
driver or independent contractor. The fleet manager also communicates the work
assignments using satellite technology, schedules time off, arranges required
safety inspections, reviews performance, provides day-to-day training, and is
accountable for the retention and productivity of the assigned employee drivers
and independent contractors.
NON-DRIVER EMPLOYEES. Mechanics, service center personnel, corporate
staff, and marketing employees are as important to the success of the Company in
meeting or exceeding customer expectations as are employee drivers and
independent contractors. Employee task groups are used to analyze specific
problems, recommend a course of corrective action, and assist in the
implementation of required changes.
As of December 31, 1997, the Company employed 856 employee drivers,
72 mechanics, 323 persons in operations, marketing and administration, and had
agreements with 448 independent contractors. The Company's employees are not
represented by any collective bargaining units, and the Company considers
relations with its employees and independent contractors to be good.
TECHNOLOGY
The Company has developed a fully integrated, client/server computer
information system. This system, which the Company anticipates will be fully
Year 2000 compliant by the end of 1998, integrates operations with the principal
back-office functions of safety, maintenance, driver and independent contractor
settlement, fuel, billing, and accounting. The system also includes
satellite-based communications with the fleet. This system provides information
directly to and from the Company, its customers, and drivers to assist in
managing a complex information environment. The Company believes that utilizing
advanced technology is the best way to manage a complex, customer-driven
logistics process in a cost effective manner.
OPERATIONS AND COMMUNICATIONS. The Company utilizes information
systems and satellite-based communications to process orders, dispatch loads,
and monitor loads in transit. Load planners match customer orders daily with
driver availability. Once the most appropriate decision respecting a load is
made, based on computer monitored load factors, the load information is sent
directly to the driver through the satellite network. The satellite system
simplifies locating of equipment and permits timely and efficient communication
of critical operating data such as shipment orders, loading instructions,
routing, fuel, taxes paid and mileage operated, payroll, safety, traffic, and
maintenance information.
ELECTRONIC DATA INTERCHANGE ("EDI"). The Company's system enables
full electronic data interchange of load tendering, shipment status, freight
billing, and payment. This system provides significant operating advantages to
the Company and its customers, including real-time information flow, reduction
or elimination of paperwork, error-free transcription, and reductions in
clerical personnel. EDI allows the Company to exchange data with its customers
in a variety of formats, depending on the individual customer's capabilities,
which significantly enhances quality control, customer service, and efficiency.
A majority of the Company's revenues are currently processed through EDI. The
Company is currently working with its trading partners to make its EDI
transactions Year 2000 compliant.
REVENUE EQUIPMENT
The Company operates a modern fleet of tractors and trailers.
Tractors are typically replaced every 36 to 54 months, based on factors such as
age and condition, current interest rates, the market for used equipment, and
improvements in technology and fuel efficiency. The average age of the
Company-operated tractors at December 31, 1997 was approximately 24 months.
The Company has available a variety of trailers to meet customer
requirements. At December 31, 1997, these included 3,448 dry vans, most of which
are logistic capable, many of which are equipped with heaters, and 275
refrigerated vans. The trailer-to-tractor ratio of 2.8 allows the Company to
provide its high-volume customers with extra trailers to accommodate loading and
unloading at their convenience. Depending on market conditions, the Company
generally replaces trailers after four to six years of service. The average age
of trailers at December 31, 1997 was approximately 25 months.
The following table shows the model years of the Company's tractors
and trailers as of December 31, 1997.
MODEL YEAR TRACTORS TRAILERS
---------- -----------
1998................................ 255 680
1997................................ 163 570
1996................................ 138 1,000
1995................................ 223 774
1994................................ 104 698
1993 and prior...................... 8 1
---------- -----------
Total Company....................... 891 3,723
Total independent contractor........ 448 --
---------- -----------
Total available............... 1,339 3,723
========== ===========
COMPETITION
The truckload transportation business is extremely competitive and
fragmented. The Company competes primarily with other truckload carriers,
particularly those in the high service end of the truckload market. The Company
also competes with alternative forms of transportation, such as rail,
intermodal, and air freight, particularly in the longer haul segments of its
business. Competition in the truckload industry has created pressure on the
industry's pricing structure. Generally, competition for the freight transported
by the Company is based more on service, equipment availability, trailer type,
and efficiency than freight rates. There are a number of competitors that have
substantially greater financial resources, operate more equipment, and transport
more freight than the Company. T.I.E. generally competes with local and regional
privately held express services companies, also a highly fragmented segment of
the transportation industry.
RECENT DEVELOPMENTS
In February 1998, the Company entered into a non-binding letter of
intent to acquire North Star Transport Inc., a private truckload carrier based
in Eagan, Minnesota. Pending results of financial review, the Company will pay
the purchase price with a combination of cash and stock expected to range from
$30 million to $40 million. The Company and North Star are currently negotiating
the terms and conditions of the proposed transaction and no purchase agreement
has been signed.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers are:
Name Age Position
- ---- --- --------
James B. Aronson 59 Chairman of the Board of Directors and Chief
Executive Officer
Robert J. Meyers 44 President, Chief Operating Officer, Chief Financial
Officer, Chief Information Officer, and Director.
Executive officers of the Company are appointed by the Board of
Directors and serve at the Board's discretion. There are no family relationships
among the executive officers.
JAMES B. ARONSON has been Chairman of the Board since May 1997,
Chief Executive Officer and a Director of the Company since August 1984, and
served as President from August 1984 to June 1994 and from June 1996 to May
1997. Prior to joining the Company, he served in several management positions
with Overland Express, Inc. from June 1969 to May 1984, most recently as
President and Chief Operating Officer.
ROBERT J. MEYERS has been a Director of the Company since July 1997,
President and Chief Operating Officer since May 1997, Chief Financial Officer
since January 1993 and Chief Information Officer since January 1992. Prior to
joining the Company, Mr. Meyers was founder and President of MicroMation, Inc.,
a Minneapolis/Saint Paul software development firm from February 1982 to January
1992. During this same period, he founded and served as a certified public
accountant with Meyers and Meyers, LTD. Prior to that time, he served in several
senior accounting, finance and information systems positions with Haskins and
Sells, Dayton-Hudson Corporation and Tennant Company.
ITEM 2. PROPERTIES
The following chart provides information concerning the Company's
service centers and other facilities:
OWNED OR SQUARE
SERVICE CENTERS AND OTHER FACILITIES LEASED ACREAGE FOOTAGE
--------------------------------------- ---------------- ---------------- -------------
Clarksville, Indiana Owned 14.7 18,126
Eagan, Minnesota Owned 17.4 46,500
Hudson, Wisconsin Owned 6.8 4,896
Janesville, Wisconsin Owned 13.6 36,700
North Jackson, Ohio Owned 8.1 11,230
North Liberty, Iowa Owned 13.0 15,150
Kansas City, Missouri Owned 10.0 14,862
Columbus, Ohio Owned 17.0 43,000
Garland, Texas Owned 9.2 32,000
Bishopville, South Carolina Leased 3.5 1,500
Atlanta, Georgia Leased * *
Eagan, Minnesota Leased ** 11,358
- -----
* This facility is shared with another company.
** Office facility.
The Company's current rental payments for its leased
facilities range from $900 to $9,700 per month. The terms of the Company's
leases for the Bishopville and Atlanta locations are month-to-month and do not
include automatic renewal options. However, the Company does not anticipate any
difficulties renewing or continuing these leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to litigation incidental to its
business, primarily involving claims for workers' compensation or for personal
injury and property damage incurred in the transportation of freight. The
Company maintains insurance which covers liability amounts in excess of retained
liabilities from personal injury and property damage claims. The Company
currently carries a total of $30 million liability insurance coverage.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
PRICE RANGE OF COMMON STOCK. The Company's Common Stock is traded in
the Nasdaq National Market under the symbol TCAM. The following table sets forth
the high and low closing prices for the Company's common stock, as reported by
Nasdaq, for the periods indicated:
Period High Low
------ ---- ---
1997:
1st Quarter $ 13 1/2 $ 10 1/4
2nd Quarter 14 13
3rd Quarter 15 1/2 13 1/8
4th Quarter 17 1/4 15 7/16
1996:
1st Quarter 14 1/8 8 7/8
2nd Quarter 13 1/4 12
3rd Quarter 12 5/8 10 3/4
4th Quarter 12 1/2 9 1/8
SHAREHOLDERS. As of March 24, 1998, the Company had 115 shareholders of
record, including Depository Trust Company which held of record 4,970,586
shares.
DIVIDENDS. The Company has never paid any dividends on its Common
Stock and does not intend to pay cash dividends for the foreseeable future. Any
future decision as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial position, cash requirements, certain corporate law
restrictions, restrictions under loan agreements and such other factors as the
Board of Directors deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share and operating data)
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
INCOME STATEMENT DATA:
Operating revenues ................... $ 186,392 $ 164,666 $ 144,254 $ 127,425 $ 104,497
Operating expenses:
Salaries, wages and benefits ...... 53,166 45,515 41,479 37,107 33,401
Fuel, maintenance and other expense 25,028 23,877 21,191 20,917 20,403
Purchased transportation .......... 55,614 46,761 37,258 29,754 18,680
Revenue equipment leases .......... 4,893 6,490 7,090 8,423 9,050
Depreciation and amortization ..... 15,494 13,966 10,273 6,535 5,118
Insurance, claims and damage ...... 5,620 4,686 5,727 5,526 5,006
Taxes and licenses ................ 3,248 2,952 2,873 3,064 2,681
Communications .................... 2,072 1,974 1,978 1,881 1,594
Other general and administrative
expense ........................ 6,410 5,324 5,389 5,096 4,243
Gain on sale of equipment ......... (1,336) (275) (1,755) (642) (1,233)
--------- --------- --------- --------- ---------
Total operating expenses ........... 170,209 151,270 131,503 117,661 98,943
Operating income ..................... 16,183 13,396 12,751 9,764 5,554
Interest expense, net ................ 3,242 2,734 2,038 2,031 1,530
--------- --------- --------- --------- ---------
Earnings before income taxes ......... 12,941 10,662 10,713 7,733 4,024
Provision for income taxes ........... 5,189 4,368 4,607 3,524 1,678
--------- --------- --------- --------- ---------
Net earnings ......................... $ 7,752 $ 6,294 $ 6,106 $ 4,209 $ 2,346
========= ========= ========= ========= =========
Net earnings per common share:
Basic ............................. $ 1.18 $ .98 $ .96 $ .86 $ .51
========= ========= ========= ========= =========
Diluted ........................... $ 1.15 $ .94 $ .91 $ .78 $ .47
========= ========= ========= ========= =========
Average common shares outstanding ... 6,568 6,442 6,361 4,883 4,625
========= ========= ========= ========= =========
Average common and common equivalent
shares outstanding ................. 6,734 6,718 6,709 5,382 5,028
========= ========= ========= ========= =========
OPERATING DATA:
Pre-tax margin (1) .................. 6.9% 6.5% 7.4 6.1% 3.9%
Tractors (at end of period):
Company ........................... 891 775 779 677 666
Independent contractor ............ 448 445 401 303 216
--------- --------- --------- --------- ---------
Total ........................ 1,339 1,220 1,180 980 882
Trailers (at end of period) .......... 3,723 3,236 2,913 2,378 2,074
Average revenues per tractor
per week .......................... $ 2,912 $ 2,736 $ 2,739 $ 2,718 $ 2,568
Average revenues per mile (2) ........ $ 1.291 $ 1.283 $ 1.275 $ 1.284 $ 1.239
Average empty mile percentage ........ 11.0% 11.2% 11.4% 9.9% 11.2%
Average length of haul, miles ........ 629 644 674 661 667
Average annual revenues
per non-driver employee ........... $ 544,300 $ 526,700 $ 477,300 $ 456,100 $ 403,000
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets ......................... $ 147,793 $ 108,671 $ 99,457 $ 76,757 $ 49,963
Long term debt, less current
maturities (3) .................. $ 44,618 $ 21,838 $ 24,436 $ 17,456 $ 19,207
Stockholders' equity ................. $ 50,808 $ 43,083 $ 36,307 $ 30,189 $ 11,181
ITEM 6. SELECTED FINANCIAL DATA, (CONTINUED)
(1) The Company has in the past acquired a significant amount of its
revenue equipment under operating leases rather than through debt financing or
capitalized leases. As a result, the Company believes that its pre-tax margin
(earnings before income taxes as a percentage of operating revenues) is a more
appropriate measure of its operating efficiency than its operating ratio
(operating expenses, excluding net interest expense, as a percentage of
operating revenues).
(2) Net of fuel surcharges.
(3) Long-term debt excludes $8,634,000 for the total of obligations
under revenue equipment operating leases for regular lease payments plus the
residual cost of acquiring the leased equipment at the end of the lease term.
The combined total of long-term indebtedness (excluding current maturities),
lease obligations, and residual acquisition costs at December 31, 1997 was
$53,432,000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The Company has included various statements in this
Management's Discussion and Analysis and Results Of Operations, the Annual
Report, and elsewhere in this Form 10-K which may be considered as
forward-looking statements of expected future results of operations or events.
Such statements, based upon management's interpretation of currently available
information, are subject to risks and uncertainties that could cause future
financial results or events to differ materially from those which are presented.
Such risks and factors which are outside of the Company's control include
general economic conditions, competition in the transportation industry,
governmental regulation, the Company's ability to recruit, train and retain
qualified drivers, fuel prices and adverse weather conditions.
OVERVIEW
Transport America began substantial operations in 1984 when Mr.
Aronson joined the Company as President and Chief Executive Officer. From 1984
to 1997, the Company increased consolidated revenues from $2.4 million to $186.4
million, including T.I.E., which commenced operations in the third quarter of
1997.
Potential liability associated with accident, cargo loss, workers'
compensation and equipment damage in the truckload industry is large and
difficult to predict. The Company reserves in its financial statements the
estimated value of all known claims, damage and losses. These estimates are
determined by Company management with the assistance of claims administrators at
the insurance carrier or by third party claims administrators. The Company's own
claims administrators estimate the cost of damage to the Company-owned
equipment. Estimates are based on case facts and past experience and are
adjusted monthly as necessary. Estimates are subject to change due to discovery
of new facts or injuries, actual settlements or jury awards which may vary from
initial estimates.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of
expense items to operating revenues for the periods indicated.
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------- -------- ------
Operating revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits.................. 28.6 27.7 28.8
Fuel, maintenance and other expenses.......... 13.4 14.6 14.7
Purchased transportation...................... 29.8 28.4 25.8
Revenue equipment leases...................... 2.6 3.9 4.9
Depreciation and amortization................. 8.3 8.5 7.1
Insurance, claims and damage.................. 3.0 2.8 4.0
Taxes and licenses............................ 1.7 1.8 2.0
Communications................................ 1.1 1.2 1.4
Other general and administrative expenses..... 3.5 3.2 3.7
Gain on sale of equipment..................... (0.7) (0.2) (1.2)
Interest expense, net ........................ 1.8 1.6 1.4
----- ----- -----
Total operating expenses......................... 93.1 93.5 92.6
Earnings before income taxes..................... 6.9 6.5 7.4
Provision for income taxes....................... 2.7 2.7 3.2
----- ----- -----
Net earnings..................................... 4.2% 3.8% 4.2%
===== ===== =====
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Operating revenues increased 13.2% to $186.4 million for the year
ended December 31, 1997 from $164.7 million for the year ended December 31,
1996. Existing customers continued as the primary source of revenue growth.
Revenues per mile, excluding fuel surcharges, were $1.29 per mile for 1997,
compared to $1.28 per mile for 1996. Equipment utilization, as measured by
average revenues per tractor per week was $2,912 during 1997, compared to $2,736
during 1996, a 6.4% improvement in 1997, compared to 1996.
The pre-tax margin (earnings before income taxes as a percentage of
operating revenues) increased to 6.9% for 1997 from 6.5% for 1996. Excluding
gain on sale of equipment, pre-tax margin was 6.2% and 6.3% for 1997 and 1996,
respectively. As measured by average annual revenues per non-driver employee,
efficiency improved 3.3% to $544,300 for 1997 from $526,700 for 1996. Salaries,
wages and benefits increased as a percentage of operating revenues to 28.6% for
1997 from 27.7% for 1996. Independent contractor miles increased 11.8% due to an
increase in the average number of contractors in 1997, when compared to 1996.
Correspondingly, purchased transportation increased as a percentage of operating
revenues to 29.8% for 1997 from 28.4% in 1996. Fuel, maintenance and other
expense decreased as a percentage of operating revenues to 13.4% for 1997 from
14.6% for 1996 as a result of the increase in independent contractor miles as a
percentage of total miles, and lower fuel costs in 1997 when compared to 1996.
As a result of an increase in independent contractors and the expanded use of
debt-financed equipment, revenue equipment leases decreased as a percentage of
operating revenues to 2.6% for 1997 from 3.9% for 1996. Depreciation and
amortization decreased to 8.3% for 1997 from 8.5% for 1996 due to the timing of
equipment purchases and the change of estimated salvage values and useful lives
of the Company's revenue equipment and software which reduced depreciation
expense by approximately $750,000 in 1997. Somewhat poorer accident and claims
experience in 1997, partially offset by favorable premium rates for policies
renewed in 1997, resulted in an increase of insurance, claims and damage expense
as a percentage of operating revenues to 3.0% in 1997 from 2.8% in 1996. Net
interest expense increased as a percentage of operating revenues to 1.8% for
1997 from 1.6% for 1996 primarily as a result of increased debt-financed
equipment purchases in 1997, when compared to 1996.
Gain on the disposition of equipment was $1.3 million in 1997,
compared to a gain of $0.3 million in 1996, as a result of the larger number of
equipment dispositions in 1997 when compared to 1996, and a favorable market for
used equipment in 1997.
The provision for income taxes as a percentage of operating revenues
was 2.7% for both 1997 and 1996. The effective tax rate for 1997 was 40.1%,
compared to the tax rate for 1996 of 41.0%. The lower effective rate in 1997 was
due primarily to a continued decline in Company per diem payments, which are not
fully deductible for income tax purposes, when compared to 1996. The Company
pays certain of its drivers a per diem allowance while on the road to cover
meals and other expenses.
As a consequence of the items discussed above, net earnings
increased to $7.8 million, or 4.2% of operating revenues, for the year ended
December 31, 1997 from $6.3 million, or 3.8% of operating revenues, for the year
ended December 31, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Operating revenues increased 14.1% to $164.7 million for the year
ended December 31, 1996 from $144.3 million for the year ended December 31,
1995. Increases in freight volumes from existing customers continued as the
primary source of revenue growth. Revenues per mile, excluding fuel surcharges
were $1.28 per mile for both 1996 and 1995, a reflection of continued soft
demand and industry overcapacity which limited opportunities for rate increases.
Equipment utilization, as measured by average revenues per tractor per week was
$2,736 during 1996, compared to $2,739 during 1995.
The pre-tax margin (earnings before income taxes as a percentage of
operating revenues) declined to 6.5% for 1996 from 7.4% for 1995. Excluding gain
on sale of equipment, pre-tax margin was 6.3% and 6.2% for 1996 and 1995,
respectively. As measured by average annual revenues per non-driver employee,
efficiency improved 10.3% to $526,700 for 1996 from $477,300 for 1995. Salaries,
wages and benefits decreased as a percentage of operating revenues to 27.7% for
1996 from 28.8% for 1995. Independent contractor miles increased 24% due to an
increase in the number of contractors to 445 at December 31, 1996 from 401 at
December 31, 1995. Correspondingly, purchased transportation increased as a
percentage of operating revenues to 28.4% for 1996 from 25.8% in 1995. Fuel,
maintenance and other expense decreased as a percentage of operating revenues to
14.6% for 1996 from 14.7% for 1995 as a result of the increase in independent
contractor miles as a percentage of total miles, and partially offset by higher
fuel costs in 1996 when compared to 1995. Average miles per gallon for
Company-owned tractors rose to 6.4 for 1996 from 6.3 for 1995 due to use of more
fuel efficient engines. Revenue equipment leases decreased as a percentage of
operating revenues to 3.9% for 1996 from 4.9% for 1995 principally as a result
of an increase in independent contractors and the expanded use of debt-financed
equipment. Depreciation and amortization increased to 8.5% for 1996 from 7.1%
for 1995 due to purchases of new revenue equipment and replacement of leased
equipment with debt-financed equipment. Improved accident and claims experience
in 1996 as well as favorable premium rates for policies renewed in 1996 resulted
in a decline of insurance, claims and damage expense as a percentage of
operating revenues to 2.8% in 1996 from 4.0% in 1995. Net interest expense
increased as a percentage of operating revenues to 1.6% for 1996 from 1.4% for
1995 primarily as a result of increased debt-financed equipment purchases in
1996, when compared to 1995.
Gain on the disposition of equipment was $0.3 million in 1996,
compared to a gain of $1.8 million in 1995, as a result of the fewer number of
equipment dispositions in 1996 when compared to 1995.
The provision for income taxes declined as a percentage of operating
revenues to 2.7% for 1996 from 3.2% for 1995. The effective tax rate for 1996
was 41.0%, compared to the tax
rate for 1995 of 43.0%. The lower effective rate in 1996 was due primarily to a
continued decline in Company per diem payments, which are not fully deductible
for income tax purposes, when compared to 1995. The Company pays certain of its
drivers a per diem allowance while on the road to cover meals and other
expenses.
As a consequence of the items discussed above, net earnings
increased to $6.3 million, or 3.8% of operating revenues, for the year ended
December 31, 1996 from $6.1 million, or 4.2% of operating revenues, for the year
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $16.8 million, $25.6
million, and $13.5 million for the years ended 1997, 1996, and 1995,
respectively. The working capital deficit was $2.2 million at December 31, 1997,
compared to the $5.8 million deficit at December 31, 1996. Historically, the
Company has operated effectively with current liabilities in excess of current
assets through a combination of operating profits, collections on accounts
receivable and other cash management strategies. Management expects to continue
to do so while meeting its obligations. Accrued liabilities include normal
provisions for accident and workers' compensation claims associated with the
Company's self-insured retention insurance program, less claim payments actually
made. The Company believes that its reserves and liquidity are adequate for
expected future claim payments.
Investing activities consumed $47.4 million in 1997, primarily for
the purchase of new revenue equipment, including 324 tractors and 1,050
trailers, less proceeds from the disposition of 208 used tractors and 564 used
trailers, as well as the purchase and construction of new service center
facilities and other equipment. These expenditures were financed through a
combination of cash provided by operating activities, long-term debt financing,
and proceeds from equipment dispositions. As of December 31, 1997 the Company
had purchase commitments totaling $9.0 million for the purchase of revenue
equipment, for which financing has been arranged. The balance of the revenue
equipment purchase commitment is expected to be financed by cash flows from
operating activities and proceeds from the disposition of used equipment.
Net cash provided by financing activities in 1997 was $25.6 million.
The primary source of financing was the issuance of $44.5 million of long-term
debt associated with the purchase of revenue equipment. Payments under the
Company's term loan agreements were $17.9 million. The Company repurchased and
retired 75,700 outstanding shares of common stock during 1997 with an aggregate
purchase price of approximately $1.0 million. The Company also received $0.4
million of proceeds from the exercise of options and warrants for the purchase
of common stock during 1997.
The Company has a $15 million credit facility with a bank,
consisting of a $10 million line of credit secured primarily by its accounts
receivable, and an additional $5 million line of credit secured by revenue
equipment not otherwise pledged. The credit facility, which expires in May 1999,
is used to meet short-term operating cash requirements, as well as letter of
credit
requirements associated with the Company's self-insured retention arrangements.
At December 31, 1997, there were letters of credit outstanding totaling
$2,830,000 under this program.
On February 10, 1998 the Company announced a letter of intent to
acquire privately held North Star Transport, Inc., a truckload carrier based in
Eagan, Minnesota. The transaction, if completed as expected, will involve a
payment of cash and an exchange of shares with a total value expected to range
from $32 million to $37 million. Debt will be incurred to fund the cash portion
of the transaction. The number of shares will be less than 20 percent of the
Company's outstanding shares at the time of the transaction. North Star has a
fleet of approximately 625 owner-operated vehicles and currently generates
annual revenues of approximately $75 million. The transaction is expected to be
completed in the second quarter of 1998.
YEAR 2000
The Company has undertaken a project to replace and upgrade those
systems which are not currently Year 2000 compliant. As part of a larger upgrade
project which commenced during 1997 for key operating systems, the Company has
is addressing the Year 2000 compliance problem. This project is expected to be
completed and the systems fully operational during 1998, with total costs
associated with Year 2000 compliance estimated to be $300,000, of which $125,000
was incurred and expensed during 1997.
NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 129, SFAS No. 130 and
SFAS No. 131. SFAS No. 129, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE,
consolidates existing disclosure requirements and had no impact on the Company's
financial statements. SFAS No. 130, REPORTING COMPREHENSIVE INCOME, establishes
standards for reporting and displaying the components of comprehensive income
and will be adopted by the Company in 1998. The statements requires additional
disclosures, but has no impact on consolidated net earnings. SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, establishes
standards for determining operating segments and reporting operating segment
information,. SFAS No. 131 is required to be adopted beginning with the
Company's 1998 year-end annual report. The Company has not yet evaluated the
effects of the pronouncement to determine what change, if any, to its current
reporting format will be required.
SEASONALITY
As is typical in the truckload industry, the Company's operations
fluctuate seasonally according to customer shipping patterns which tend to peak
in the summer and fall, then increase again after the holiday and winter
seasons. Operating expenses also tend to be higher during the cold weather
months, primarily due to poorer fuel economy and increased maintenance costs.
INFLATION
Many of the Company's operating expenses are sensitive to the
effects of inflation, which could result in higher operating costs. The effects
of inflation on the Company's business have not been significant during the last
three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein. See "Quarterly Financial Data" appearing on page F-20 of
the audited consolidated financial statements which are incorporated herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning the Company's executive officers,
reference is made to the information set forth under the caption "Executive
Officers of the Registrant" located in Item 1 on page 8 of this Form 10-K. For
information concerning the Company's directors and compliance by the Company's
directors, executive officers and significant shareholders with the reporting
requirements of Section 16(a) of the Securities Exchange Act of 1934, as
amended, reference is made to the information set forth under the captions
"Election of Directors" and "Beneficial Ownership of Common Stock,"
respectively, in the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 21, 1998 to be filed pursuant to Regulation 14A,
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption
"Executive Compensation and Other Information" in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 21, 1998 to be filed
pursuant to Regulation 14A, which information is incorporated herein by
reference, except to the extent stated therein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the information set forth under the caption
"Beneficial Ownership of Common Stock" in the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 21, 1998 to be filed pursuant
to Regulation 14A, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this Form 10-K
1. Consolidated Financial Statements
Form 10-K
Page Reference
--------------
Index to Consolidated Financial Statements ............. F-1
Independent Auditors' Report ........................... F-2
Consolidated Balance Sheets ............................ F-3
Consolidated Statements of Earnings .................... F-5
Consolidated Statements of Stockholders' Equity ........ F-6
Consolidated Statements of Cash Flows .................. F-7
Notes to Consolidated Financial Statements ............. F-8
2. Consolidated Financial Statement Schedules
Included in Part IV of this report:
Independent Auditors' Report on Schedule ............ S-1
Schedule VIII - Valuation and Qualifying Accounts ... S-2
3. Exhibits
Exhibit
Number Description Page
- ------ ----------- ----
3.1 Articles of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
S-1 (File No. 33-84140) as declared effective by the
Commission on November 3, 1994 (the "1994 S-1")).
3.2 Bylaws (incorporated by reference to Exhibit 3.2 to the 1994
S-1).
4.1 Rights Agreement by and between the Company and Norwest Bank
Minnesota, N.A., dated February 25, 1997 (incorporated by
reference to Exhibit 1 to the Company's Registration Statement
on Form 8-A, as amended, filed with the SEC on February 27,
1997).
10.2 1986 Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.2 to the Company's Form 10-K for the year ended
December 31, 1996).
10.3 401(k) Retirement Plan (incorporated by reference to Exhibit
10.3 to the 1994 S-1).
10.4 Credit Agreement dated as of May 15, 1997 between Firstar Bank
of Minnesota, N.A. and the Company.
10.5 Form of warrants granted to officers, directors and
consultants (incorporated by reference to Exhibit 10.5 to the
1994 S-1).
10.6 Form of Vehicle Lease and Independent Contractor Agreement
(incorporated by reference to Exhibit 10.11 to the Company's
Form 10-K for the year ended December 31, 1996).
10.12 Employee Stock Purchase Plan (incorporated by reference to
Form S-8 which was filed on January 31, 1996 (File No.
333-934)).
10.13 1995 Stock Plan, as amended (incorporated by reference to
Exhibit 10.13 to the Company's Form 10-K for the year ended
December 31, 1996).
11.1 Statement re: Computation of Earnings per Share ...................
23.1 Independent Auditors' Consent .....................................
27.1 Financial Data Schedule, Fiscal year end 1997 .....................
27.2 Financial Data Schedule, Quarters 1, 2, and 3 of 1997 .............
27.3 Financial Data Schedule, Fiscal year end 1996 and and Quarters
1, 2, and 3 of 1996 ...............................................
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
December 31, 1997.
(c) Exhibits
Reference is made to Item 14(a)3.
(d) Schedules
Reference is made to Item 14(a)2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TRANSPORT CORPORATION OF AMERICA, INC.
("Registrant")
Dated: March 24, 1998 By /s/ James B. Aronson
James B. Aronson
--------------------------------------
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ James B. Aronson March 24 , 1998
- -----------------------------------------
James B. Aronson
Chairman of the Board and
Chief Executive Officer
/s/ Robert J. Meyers March 24 , 1998
- -----------------------------------------
Robert J. Meyers
President,
Chief Operating Officer and
Chief Financial Officer
/s/ Dennis M. Mathisen March 24 , 1998
- -----------------------------------------
Dennis M. Mathisen, Director
/s/ Anton J. Christianson March 24 , 1998
- -----------------------------------------
Anton J. Christianson, Director
/s/ Michael J. Paxton March 24 , 1998
- -----------------------------------------
Michael J. Paxton, Director
/s/ Kenneth J. Roering March 24 , 1998
- -----------------------------------------
Kenneth J. Roering, Director
Independent Auditors' Report on Schedule
The Board of Directors and Stockholders
Transport Corporation of America, Inc.
Under date of January 29, 1998, except as to note 12 which is as of February 10,
1998, we reported on the consolidated balance sheets of Transport Corporation of
America, Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements, and our report thereon, are included in the
annual report on Form 10-K for the year 1997. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1998
S-1
SCHEDULE VIII
TRANSPORT CORPORATION OF AMERICA, INC.
Valuation and Qualifying Accounts
Additions
----------------------
Additions
Balance at charged to Charge to Balance
beginning cost and other at end
Description of year expense accounts Deductions of year
- ---------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1997
Allowance for doubtful accounts
(deducted from accounts receivable) $ 313,000 115,000 104,000 $ 324,000
===========================================================================================================================
Year ended December 31, 1996
Allowance for doubtful accounts
(deducted from accounts receivable) $ 304,000 60,000 51,000 (1) $ 313,000
===========================================================================================================================
Year ended December 31, 1995
Allowance for doubtful accounts
(deducted from accounts receivable) $ 238,000 60,000 (6,000) $ 304,000
===========================================================================================================================
(1) Accounts deemed to be uncollectible $60,000
Recoveries of amount previously deemed to
be uncollectible (9,000)
-------------
$51,000
-------------
S-2
TRANSPORT CORPORATION OF AMERICA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report..............................................F-2
Consolidated Balance Sheets...............................................F-3
Consolidated Statements of Earnings.......................................F-5
Consolidated Statements of Stockholders' Equity...........................F-6
Consolidated Statements of Cash Flows.....................................F-7
Notes to Consolidated Financial Statements................................F-8
TRANSPORT CORPORATION OF AMERICA, INC.
Independent Auditors' Report
The Board of Directors and Stockholders
Transport Corporation of America, Inc.:
We have audited the consolidated balance sheets of Transport Corporation of
America, Inc. and subsidiary (the "Company") as of December 31, 1997 and 1996,
and the related consolidated statements of earnings, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Transport
Corporation of America, Inc. and subsidiary as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1998, except as to note 12
which is as of February 10, 1998
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Balance Sheets
December 31
-----------------------------------
Assets 1997 1996
- -----------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 1,382,867 $ 6,340,991
Trade receivables, less allowance for doubtful accounts
of $324,000 in 1997 and $313,000 in 1996 (note 3) 17,481,836 12,617,377
Other receivables (note 2) 4,756,733 656,753
Operating supplies - inventory 989,412 810,180
Deferred income tax benefit (notes 1 and 8) 3,945,000 2,113,000
Prepaid expenses and tires 1,920,925 2,102,271
- ---------------------------------------------------------------------------------------------------------
Total current assets 30,476,773 24,640,572
Revenue equipment, net of accumulated depreciation
of $29,871,000 in 1997 and $25,121,000 in 1996
(note 3 and 5) 97,014,283 69,570,105
Property and other equipment (note 5):
Land, buildings, and improvements 17,120,465 11,042,479
Other equipment 7,082,199 5,183,786
Less accumulated depreciation (6,177,182) (4,879,203)
- ---------------------------------------------------------------------------------------------------------
Net property and other equipment 18,025,482 11,347,062
Other assets, net 2,275,994 3,113,171
- ---------------------------------------------------------------------------------------------------------
Total assets $ 147,792,532 $ 108,670,910
=========================================================================================================
See accompanying notes to consolidated financial statements.
December 31
--------------------------------
Liabilities and Stockholders' Equity 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt (note 3 and 5) $ 19,076,851 $ 15,258,593
Accounts payable 3,557,416 2,607,861
Checks issued in excess of cash balances 0 350,950
Due to independent contractors 518,314 1,385,364
Accrued expenses (note 4) 9,562,304 10,837,326
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 32,714,885 30,440,094
Long term debt, less current maturities (note 5) 44,617,734 21,837,713
Deferred income taxes (note 8) 19,652,000 13,310,000
Commitments (notes 7 and 10 )
Stockholders' equity (note 6):
Common stock, $.01 par value; 15,000,000 shares authorized; 6,590,634 and
6,496,039 shares issued and outstanding
as of December 31, 1997 and 1996, respectively 65,906 64,960
Additional paid-in capital 23,823,835 23,851,516
Retained earnings 26,918,172 19,166,627
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 50,807,913 43,083,103
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 147,792,532 $ 108,670,910
====================================================================================================================
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Earnings
Years ended December 31
--------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $ 186,392,409 $ 164,666,098 $ 144,254,491
Operating expenses:
Salaries, wages and benefits 53,165,856 45,515,262 41,479,035
Fuel, maintenance and other expenses 25,027,811 23,877,402 21,190,845
Purchased transportation 55,614,225 46,760,672 37,257,678
Revenue equipment leases 4,893,657 6,489,621 7,090,426
Depreciation and amortization 15,494,080 13,966,419 10,273,111
Insurance, claims and damage 5,619,787 4,686,243 5,726,945
Taxes and licenses 3,248,655 2,952,332 2,873,096
Communications 2,071,706 1,974,625 1,977,816
Other general and administrative expenses 6,409,733 5,323,586 5,388,994
Gain on sale of equipment (1,336,338) (275,582) (1,754,810)
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 170,209,172 151,270,580 131,503,136
- ----------------------------------------------------------------------------------------------------------------
Operating income 16,183,237 13,395,518 12,751,355
Interest expense 3,307,046 2,823,839 2,232,702
Interest income (64,854) (90,220) (194,454)
- ----------------------------------------------------------------------------------------------------------------
Interest expense, net 3,242,192 2,733,619 2,038,248
- ----------------------------------------------------------------------------------------------------------------
Earnings before income taxes 12,941,045 10,661,899 10,713,107
Provision for income taxes (note 8) 5,189,500 4,368,000 4,607,000
- ----------------------------------------------------------------------------------------------------------------
Net earnings (note 6) $ 7,751,545 $ 6,293,899 $ 6,106,107
- ----------------------------------------------------------------------------------------------------------------
Earnings per common share
Basic $ 1.18 $ 0.98 $ 0.96
Diluted $ 1.15 $ 0.94 $ 0.91
- ----------------------------------------------------------------------------------------------------------------
Average common shares outstanding 6,568,444 6,441,723 6,360,992
Average common and common equivalent
shares outstanding for diluted earnings
per share 6,734,352 6,718,351 6,709,222
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements Of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
Common Additional Total
-------------------------- paid-in Retained stockholders'
Shares Amount capital earnings equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 6,329,607 $ 63,296 $ 23,359,352 $ 6,766,621 $ 30,189,269
Common stock options
and warrants 91,012 910 11,117 0 12,027
Net earnings 0 0 0 6,106,107 6,106,107
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 6,420,619 64,206 23,370,469 12,872,728 36,307,403
Common stock options,
warrants, and stock
purchase plan 75,420 754 481,047 0 481,801
Net earnings 0 0 0 6,293,899 6,293,899
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 6,496,039 64,960 23,851,516 19,166,627 43,083,103
Common stock options,
warrants, and stock
purchase plan 170,295 1,703 357,748 0 359,451
Tax benefits related to
employee stock warrant
transactions 0 0 571,000 0 571,000
Repurchase and retirement
of common stock (75,700) (757) (956,429) 0 (957,186)
Net earnings 0 0 0 7,751,545 7,751,545
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 6,590,634 $ 65,906 $ 23,823,835 $ 26,918,172 $ 50,807,913
====================================================================================================================================
See accompanying notes to consolidated financial statements.
TRANSPORT CORPORATION OF AMERICA, INC.
Consolidated Statements of Cash Flows
Years ended December 31
-------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Operating activities:
Net earnings $ 7,751,545 $ 6,293,899 $ 6,106,107
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 15,494,080 13,966,419 10,273,111
Gain on sale of equipment (1,336,338) (275,582) (1,754,810)
Deferred income taxes 4,510,000 3,241,000 2,850,000
Tax benefits related to employee stock warrant transactions 571,000 0 0
Changes in operating assets and liabilities:
Trade receivables (4,864,459) 423,131 (1,907,653)
Other receivables (4,099,980) 2,665,342 (2,604,193)
Operating supplies (179,232) 153,310 (400,011)
Prepaid expenses and tires 181,346 (210,601) (215,925)
Accounts payable 949,555 (389,394) 128,889
Due to independent contractors (867,050) 405,289 308,950
Accrued expenses (1,275,022) (707,602) 699,618
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 16,835,445 25,565,211 13,484,083
- ----------------------------------------------------------------------------------------------------------------------------------
Investing activities:
Payments for purchases of revenue equipment (51,002,674) (21,132,518) (41,216,303)
Payments for purchases of property and other equipment (8,048,184) (3,303,334) (1,937,911)
(Increase) decrease in other assets (195,680) 82,812 221,500
Proceeds from sales of equipment 11,803,375 4,168,115 9,806,998
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (47,443,163) (20,184,925) (33,125,716)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of common stock,
and exercise of options and warrants 359,451 481,801 12,027
Payments for repurchase and retirement of common stock (957,186) 0 0
Proceeds from issuance of long-term debt 44,538,697 15,591,819 17,897,080
Principal payments on long-term debt (17,940,418) (12,246,110) (7,470,911)
Proceeds from issuance of notes payable to bank 38,060,000 21,888,000 11,720,000
Principal payments on notes payable to bank (38,060,000) (24,118,000) (9,490,000)
Change in net checks issued in excess of cash balances (350,950) (801,978) (233,432)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 25,649,594 795,532 12,434,764
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (4,958,124) 6,175,818 (7,206,869)
Cash and cash equivalents, beginning of year 6,340,991 165,173 7,372,042
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,382,867 $ 6,340,991 $ 165,173
==================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,424,736 $ 2,806,400 $ 2,115,034
Income taxes, net 1,313,063 1,136,516 2,354,588
See accompanying notes to consolidated financial statements.
TRANSPORT CORPORATION OF AMERICA, INC.
Notes to Consolidated Financial Statements
Years ended December 31, 1997, 1996, and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF BUSINESS
NATURE OF BUSINESS
Transport Corporation of America, Inc. (the Company) is a
truckload motor carrier engaged in the transportation of a
variety of general commodities for customers principally in
the United States and portions of Canada, pursuant to
nationwide operation authority. Customer freight is
transported by Company equipment and by independent
contractors. Payments to Company drivers and independent
contractors are primarily based upon miles driven. Transport
International Express, Inc., the Company's wholly-owned
subsidiary which commenced operations in the third quarter of
1997, provides airport-to-airport less-than-truckload express
service to air freight forwarders and airlines throughout the
United States.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include all accounts of the
Company and its wholly owned subsidiary, Transport
International Express, Inc. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995
financial statements in order to conform to the 1997
presentation.
REVENUE RECOGNITION
Operating revenues are recognized when the freight to be
transported has been loaded. Amounts payable to independent
contractors for purchased transportation, to Company drivers
for wages and any other direct expenses are accrued when the
related revenue is recognized. If the Company had used the
method whereby revenues and related direct costs are
recognized when the shipment is completed, there would not
have been a material effect on the Company's financial
position, results of operations, or liquidity on either an
annual or quarterly basis.
TRANSPORT CORPORATION OF AMERICA, INC.
REVENUE EQUIPMENT, PROPERTY, AND OTHER EQUIPMENT
Revenue equipment, property, and other equipment are recorded at
cost. Depreciation, including amortization of capitalized
leases, is computed using the straight-line basis over the
estimated useful lives of the assets or the lease periods,
whichever is shorter. The estimated useful lives and salvage
values are as follows:
Years Salvage value
- -----------------------------------------------------------------------------
Tractors 5 25-30%
Trailers 5 47.5-50%
Buildings 30 0
Other equipment, including computers and furniture 3-7 0
During 1997, the Company changed the estimated salvage value,
estimated life of certain of its' revenue equipment and the
estimated life of its' computer software. These changes were
made to better reflect the estimated salvage values and useful
lives of such assets. The changes resulted in a net decrease
in depreciation and other operating expenses of approximately
$750,000, an increase in net income of approximately $450,000,
and an increase in both basic and diluted earnings per share
of $0.07.
TIRES
Tires placed on new equipment after December 31, 1996 are
capitalized as part of revenue equipment and amortized over
their estimated life. Tires placed on new equipment prior to
December 31, 1996 are included in other assets (net) and are
capitalized and recorded as prepaid tires and amortized over
their estimated life.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of, on January 1, 1996. This Statement requires
that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption
of this Statement had no impact on the Company's financial
position or results of operations.
TRANSPORT CORPORATION OF AMERICA, INC.
OPERATING SUPPLIES
Operating supplies representing repair parts, fuel, and
replacement tires for revenue equipment are recorded at cost.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
ESTIMATED LIABILITY FOR INSURANCE CLAIMS
The Company has automobile liability, workers' compensation and
health insurance coverage under both deductible and
retrospective rating policies. The Company estimates and
accrues a liability for its share of ultimate settlements
using all available information, including the services of a
third party insurance risk claims administrator, to establish
reserve levels for each occurrence based on the facts and
circumstances of the occurrence coupled with the Company's
history of such claims. The Company accrues for workers'
compensation and automobile liability claims when reported.
The recorded expense depends upon actual loss experience and
changes in estimates of settlement amounts for open claims
which have not been fully resolved. The Company provides for
adverse loss development in the period when new information so
dictates. However, final settlement of these claims could
differ materially from the amounts the Company has accrued at
year-end. The Company accrues for health insurance claims
reported, as well as for claims incurred but not reported,
based upon the Company's past experience.
STOCK-BASED EMPLOYEE COMPENSATION
The Company follows the provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for
its stock-based employee compensation plans. The Company has
adopted the disclosure-only requirements of Statement of
Financial Accounting Standards No. 123, Accounting for Stock
Based Compensation.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the
amounts presented on the financial statements for the existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
TRANSPORT CORPORATION OF AMERICA, INC.
NET EARNINGS PER SHARE: BASIC AND DILUTED
Basic net earnings per common share is computed by dividing net
earnings by the weighted average number of common shares
outstanding during the year.
Diluted net earnings per share is computed by dividing net
earnings by the weighted average number of shares outstanding
assuming exercise of dilutive stock options and warrants,
which are considered to be common stock equivalents. Common
stock equivalents are included under the treasury stock method
using the average market price of the Company's stock during
each period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's financial assets and
liabilities, because of their short-term nature, approximates
fair value. The fair value of the Company's borrowing, if
recalculated based on current interest rates, would not
significantly differ from the recorded amounts.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with initial
maturities of three months or less to be cash equivalents.
(2) OTHER RECEIVABLES
Other Receivables at December 31, 1997 includes a receivable of
approximately $3.7 million related to the sale of certain
revenue equipment.
(3) LINE OF CREDIT
The Company has a $15 million credit facility with a bank,
consisting of a $10 million line of credit secured primarily
by the Company's accounts receivable, and an additional $5
million line of credit secured by revenue equipment not
otherwise pledged. The credit facility, which expires in May
1999, is used to meet short-term operating cash requirements
as well as letter of credit requirements associated with the
Company's self-insured retention arrangements. At December 31,
1997, there were letters of credit outstanding totaling
$2,830,000 under this program.
TRANSPORT CORPORATION OF AMERICA, INC.
The following is a summary of data relating to this short-term financing:
Years ended
December 31
-----------------------------
1997 1996
- -------------------------------------------------------------------------------
Outstanding balance at year end $ 0 $ 0
Average amount outstanding 801,000 360,000
Maximum amount outstanding 3,640,000 3,920,000
Weighted average interest rate during the year 8.5% 8.3%
Commitment fee on unused balances 0.21% 0.25%
(4) ACCRUED EXPENSES
Accrued expenses are as follows:
December 31
---------------------------
1997 1996
- -----------------------------------------------------------------------------
Salaries and wages $ 1,767,996 $ 2,767,973
Insurance, claims, and damage 5,587,533 5,701,584
Independent contractor escrows 954,061 811,778
Taxes, other than income 430,670 452,425
Current income tax 0 620,699
Interest 149,150 266,840
Other 672,894 216,027
- -----------------------------------------------------------------------------
$ 9,562,304 $10,837,326
=============================================================================
TRANSPORT CORPORATION OF AMERICA, INC.
(5) LONG-TERM DEBT
Long-term debt consists of the following:
December 31
----------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------
Notes payable to banks and other financial institutions with maturities through
October 2001, secured by certain revenue equipment:
Interest rates ranging from 6.8% to 7.7% $59,329,853 $31,601,192
Interest rate floating on a reference rate which was
7.7% at December 31, 1997 3,249,616 4,063,911
Obligations under capital leases payable with maturities through December 1999:
Interest rates ranging from 4.4% to 12.0%, secured by
certain revenue equipment and other equipment 920,192 1,204,989
Mortgage notes payable with maturities through October 2002, secured by real
estate:
Interest rates of 9.0% 194,924 226,214
- ----------------------------------------------------------------------------------------------------------------
Total long-term debt 63,694,585 37,096,306
Less current maturities of long-term debt 19,076,851 15,258,593
- ----------------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $44,617,734 $21,837,713
================================================================================================================
The aggregate annual maturities of long-term debt at December 31,
1997 are as follows:
Year ending
December 31 Amount
------------------------------------------------------------
1998 $ 19,076,851
1999 20,330,297
2000 15,026,268
2001 9,219,892
2002 41,277
------------------------------------------------------------
$ 63,694,585
============================================================
TRANSPORT CORPORATION OF AMERICA, INC.
6) STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN AND PREFERRED STOCK DISTRIBUTION
In February 1997, the Company adopted a stockholder rights plan
and declared a dividend of one Preferred Stock Purchase Right
(Right) for each outstanding share of the Company's common
stock. The plan and dividend become operative in certain
events involving the acquisition of 15% or more of the
Company's voting stock by any person or group in a transaction
not approved by the Board of Directors.
Each Right entitles the holder to purchase two-hundredths of a
share of Series A Junior Participating Preferred Stock for $60
upon the occurrence of certain specified events. Additionally,
the Rights entitle the holder, upon the occurrence of certain
specified events, to purchase common stock having a value of
twice the exercise price of the Right; upon the occurrence of
certain other specified events, to purchase from an entity
acquiring at least 15% of the voting securities or voting
power of the Company, common stock of the acquiring entity
having twice the exercise price of the Right. The Rights may
be redeemed by the Company at a price of $0.001 per Right. The
Rights expire on February 25, 2007, and are not presently
exercisable.
WARRANTS
At December 31, 1997 and 1996, the Company had outstanding
warrants for the purchase of 37,500 and 184,125 shares of the
Company's common stock, respectively, at prices ranging from
$1.40 to $5.20 per share. All of the warrants are currently
exercisable and have expiration dates through 1999. During
1996, warrants for the purchase of 3,750 shares were exercised
in a cashless transaction resulting in the issue of 3,253
shares. No warrants were granted during 1997 or 1996.
Warrant transactions are summarized as follows:
1997 1996
- -----------------------------------------------------------------------------------------------------
Warrants outstanding at beginning of year 184,125 187,875
Warrants exercised 146,625 3,750
- -----------------------------------------------------------------------------------------------------
Warrants outstanding at end of year 37,500 184,125
=====================================================================================================
Weighted average price of warrants outstanding at end of year $ 3.68 $ 1.99
=====================================================================================================
EMPLOYEE STOCK PURCHASE PLAN
In 1996, the stockholders approved, and the Company implemented,
an Employee Stock Purchase Plan ("the Plan"). The purpose of
the Plan is to encourage employees to purchase shares of
Common Stock in the Company thereby providing a greater
community of interest between the Company and its employees.
There are 100,000 shares of the Company's Common Stock
reserved for issuance under the Plan, which terminates on
December 31, 2000.
TRANSPORT CORPORATION OF AMERICA, INC.
The Plan permits employees to purchase shares of Common Stock of
the Company at a price equal to the lesser of 85% of the
market value of the Common Stock at the commencement or
termination dates of each phase. Each year, during the term of
the plan, there are two six-month phases commencing on January
1 and July 1, respectively, except for the initial phase of
1996, which commenced on March 1, 1996. Employees who have
been employed for one year and who are regularly scheduled to
work more than 20 hours per week and who are less than 5%
owners are eligible to participate in the program via payroll
deductions. Purchases are limited to 10% of a participant's
base pay during the respective phase.
During 1997 and 1996, employees purchased 5,280 and 2,287 shares
respectively, at average prices of $9.13 and $9.98 per share,
respectively.
STOCK OPTION PLANS
The Company has adopted two stock option plans which allow for the
grant of options to officers and other key employees to
purchase common shares at an exercise price not less than 100%
of fair market value on the dates of grant. Officers and other
key employees of the Company who are responsible for, or
contribute to, the management, growth and/or profitability of
the business of the Company, as well as selected consultants
under contract to the Company and non-employee directors are
eligible to be granted awards. These option plans allow for
the grant of up to 725,000 shares. Options generally vest in
cumulative annual increments over periods from one to four
years and expire five years from date of issuance. At December
31, 1997 and 1996, the exercise prices of outstanding options
ranged from $1.40 to $13.44 for both periods with a weighted
average contractual life of approximately two and three years,
respectively.
Option transactions are summarized as follows:
Weighted Average
Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
----------- ------------ -------------- ----------
Options outstanding at beginning of year 252,437 301,780 $ 7.25 $ 6.72
Granted 6,000 37,277 13.00 11.83
Canceled 0 (16,740) 0 10.66
Exercised (18,390) (69,880) 4.48 6.57
- -------------------------------------------------------------------------------------------------------------------------------
Options outstanding at end of year 240,047 252,437 $ 7.61 $ 7.25
================================================================================================================================
Options exercisable at end of year 221,596 177,590 $ 7.28 $ 6.13
================================================================================================================================
TRANSPORT CORPORATION OF AMERICA, INC.
The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Accordingly, no
compensation cost has been recognized with respect to the
Company's stock option plans or the Employee Stock Purchase
Plan. Had compensation cost been determined on the basis of
fair value pursuant to the provisions of SFAS No. 123, net
earnings and net earnings per share would have been reduced to
the pro forma amounts indicated below:
1997 1996
- -------------------------------------------------------------------------
Net earnings:
As reported $ 7,751,545 $ 6,293,899
=========== ===========
Pro forma $ 7,679,721 $ 6,233,809
=========== ===========
Net basic earnings per share:
As reported $ 1.18 $ 0.98
=========== ===========
Pro forma $ 1.17 $ 0.97
=========== ===========
Net diluted earnings per share:
As reported $ 1.15 $ 0.94
=========== ===========
Pro forma $ 1.14 $ 0.93
=========== ===========
The above pro forma amounts may not be representative of the
effects on reported net earnings for future years. The fair
value of each option grant is estimated on the date of grant
using the Black-Scholes options-pricing model with the
following weighted-average assumptions used for grants in 1997
and 1996:
1997 1996
-----------------------------------------------
Dividend yield 0.0% 0.0%
Expected volatility 37.0% 40.0%
Risk-free interest rate 6.21% 6.21%
Expected lives 5 years 5 years
===============================================
(7) EMPLOYEE BENEFIT PLANS
The Company has a savings retirement plan ("the Plan") for
eligible employees under Section 401(k) of the Internal
Revenue Code. The Plan allows employees to defer up to 16% of
their compensation on a pretax basis. The Company may, at its
discretion, match a portion of the employee deferrals. During
1997, 1996, and 1995 the Company contributed amounts equal to
one-fourth of the employee deferrals, up to 1% of each
participant's compensation. For participants who are employed
as truck drivers with pay based on actual miles driven, the
Company may also elect to contribute 1/2(cent) and 1(cent) per
paid mile driven for drivers with over one and two years of
service, respectively. The Company contributed $525,000 in
1997, $323,000 in 1996, and $480,000 in 1995, to the Plan on
behalf of all employees.
TRANSPORT CORPORATION OF AMERICA, INC.
(8) INCOME TAXES
The provision for income taxes consists of the following:
Current Deferred Total
- ---------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 1997:
Federal $ (21,000) $ 4,147,500 $ 4,126,500
State 150,000 913,000 1,063,000
- ---------------------------------------------------------------------------------------------------------------------
$ 129,000 $ 5,060,500 $ 5,189,500
=====================================================================================================================
For the year ended December 31, 1996:
Federal $ 896,000 $ 2,603,000 $ 3,499,000
State 239,000 630,000 869,000
- ---------------------------------------------------------------------------------------------------------------------
$ 1,135,000 $ 3,233,000 $ 4,368,000
=====================================================================================================================
For the year ended December 31, 1995:
Federal $ 1,385,000 $ 2,327,000 $ 3,712,000
State 380,000 515,000 895,000
- ---------------------------------------------------------------------------------------------------------------------
$ 1,765,000 $ 2,842,000 $ 4,607,000
=====================================================================================================================
The income tax expense differs from the "expected" tax expense
as follows for the years ended December 31, 1997, 1996,
and 1995:
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
Expected federal tax expense at statutory rates $ 4,529,000 $ 3,625,000 $ 3,643,000
Increases in taxes resulting from:
State income taxes, net of federal benefit 691,000 546,000 591,000
Expenses not deductible for tax purposes 216,000 250,000 373,000
Other (246,500) (53,000) 0
- ---------------------------------------------------------------------------------------------------------------------
Actual tax expense $ 5,189,500 $ 4,368,000 $ 4,607,000
=====================================================================================================================
TRANSPORT CORPORATION OF AMERICA, INC.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1997 and 1996 are presented
below:
1997 1996
- -------------------------------------------------------------------------------------------
Deferred tax assets:
Vacation accrual $ 328,000 $ 226,000
Allowance for doubtful accounts 125,000 121,000
Net operating loss carryforward 1,688,000 0
Insurance, claims, and damage accruals 2,051,000 2,088,000
Alternative minimum tax credit carryforward 2,137,000 2,117,000
- -------------------------------------------------------------------------------------------
Total deferred tax assets 6,329,000 4,552,000
- -------------------------------------------------------------------------------------------
Deferred tax liabilities:
Equipment, principally due to differences in
depreciation and lease 22,036,000 15,749,000
- --------------------------------------------------------------------------------------------
Net deferred tax liability $ 15,707,000 $ 11,197,000
- --------------------------------------------------------------------------------------------
At December 31, 1997, the Company has net operating loss
carryforwards for federal income tax purposes of $4,371,700
which are available to offset future federal taxable income,
if any, through 2012. The Company also has alternative minimum
tax credit carryforwards of approximately $2,137,000 which are
available to reduce future federal regular income taxes, if
any, over an indefinite period.
The Company has reviewed the need for a valuation allowance
relating to the deferred tax assets and has ascertained that
no allowance is needed.
(9) MAJOR CUSTOMERS
Sales to the Company's five largest customers represented 43%,
43%, and 39%, of total revenues for 1997, 1996, and 1995,
respectively. One customer accounted for approximately 14% of
sales in 1997, 16% in 1996, and 13% in 1995.
(10) COMMITMENTS
REVENUE EQUIPMENT LEASES
The Company has entered into operating leases for certain revenue
equipment. The aggregate cost of this leased equipment at the
beginning of the leases was approximately $20,302,000 at
December 31, 1997.
Approximately $5,820,000 of the equipment is under noncancelable
operating leases of 36 to 60 months, with the equipment
reverting to the lessor at the end of lease term.
TRANSPORT CORPORATION OF AMERICA, INC.
Approximately $14,481,000 of the equipment is under TRAC (terminal
rental adjustment clause) operating leases, over periods
generally ranging from 48 to 72 months. Several of these
leases allow the Company to terminate the lease anytime after
a minimum lease term, ranging from 12 to 36 months. In
exchange, the Company guarantees the lessor a predetermined
decreasing resale value. The guaranteed resale value of
equipment under TRAC leases, assuming termination at the end
of the noncancelable minimum lease term, is approximately
$9,325,000 through 1998 which will be reduced by the sales
proceeds of the equipment. However, the Company typically
continues the lease through to the full term of the lease
agreement. The full term guaranteed termination values vary
from 20% to 40% of the original cost for tractors, van
trailers, and temperature-controlled trailers. Typically the
lessor assumes a portion of the residual risk for the
condition of the equipment upon termination of the contract.
Rental expense under these operating leases was approximately
$4,751,000 in 1997, $6,438,000 in 1996, and $7,089,000 in
1995.
Aggregate future minimum lease payments as of December 31, 1997
for the noncancelable portion of revenue equipment under
operating leases are as follows:
Years ending December 31:
1998 $ 1,016,532
1999 804,826
2000 469,482
-----------------------------------------------------------
$ 2,290,840
===========================================================
OTHER LEASES
The Company leases one facility with future minimum lease payments
of $301,019 which expire in 2000. The total facility and computer
equipment operating lease expense was $155,785 in 1997, $138,300
in 1996, and $151,758 in 1995.
CAPITAL ADDITIONS
The Company has committed to purchase approximately $9,000,000 of
revenue equipment to be delivered during 1998.
GUARANTEE OF INDEBTEDNESS
In 1997, the Company established a program whereby experienced
Company drivers can purchase their own truck. As part of the
program, the driver agrees to make certain commitments to the
Company and to purchase a vehicle meeting certain
specifications established by the Company. In exchange, the
company facilitates the financing of the vehicle by
guaranteeing the loans made to drivers participating in the
program.
TRANSPORT CORPORATION OF AMERICA, INC.
To accommodate the financing for this program, the Company has
entered into a loan servicing and guaranty agreement with a
bank. Under the terms of the agreement, the Company guarantees
the individual driver loans and has the right to repossess the
vehicle in the event a driver defaults on the loan. As of
December 31, 1997, thirteen such loans with an outstanding
balance of approximately $782,000 had been guaranteed. No
loans were in default.
TRANSPORT CORPORATION OF AMERICA, INC.
(11) Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1997, 1996, 1995
1997:
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
Operating Revenues $43,475,225 $46,368,579 $47,099,930 $49,448,675
Operating Income 2,287,060 4,199,204 4,790,148 4,906,825
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 987,888 $ 2,074,079 $ 2,389,498 $ 2,300,080
Net earnings
per common share:
Basic $ 0.15 $ 0.32 $ 0.36 $ 0.35
Diluted $ 0.15 $ 0.31 $ 0.36 $ 0.34
=========================================================================================================
1996:
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
Operating Revenues $38,794,178 $41,225,259 $42,463,861 $42,182,800
Operating Income 1,796,632 3,778,868 4,332,477 3,487,541
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 645,179 $ 1,796,739 $ 2,119,071 $ 1,732,910
Net earnings per
common share:
Basic $ 0.10 $ 0.28 $ 0.33 $ 0.27
Diluted $ 0.10 $ 0.27 $ 0.32 $ 0.26
=========================================================================================================
1995:
Quarter First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
Operating Revenues $34,350,614 $34,972,128 $36,730,124 $38,201,625
Operating Income 2,282,580 3,701,119 3,766,426 3,001,230
- ---------------------------------------------------------------------------------------------------------
Net earnings $ 1,046,356 $ 1,857,056 $ 1,859,731 $ 1,342,964
Net earnings per
common share:
Basic $ 0.17 $ 0.29 $ 0.29 $ 0.21
Diluted $ 0.16 $ 0.28 $ 0.28 $ 0.20
=========================================================================================================
TRANSPORT CORPORATION OF AMERICA, INC.
(12) SUBSEQUENT EVENT
On February 10, 1998 the Company announced a letter of intent to
acquire privately held North Star Transport, Inc., a truckload
carrier based in Eagan, Minnesota. The transaction, if
completed as expected, will be completed with a combination of
cash and an exchange of shares with a total value expected to
range from $32 million to $37 million. The number of shares
will be less than 20 percent of the Company's outstanding
shares at the time of the transaction. North Star has a fleet
of approximately 625 owner-operated vehicles and currently
generates annual revenues of approximately $75 million. The
transaction is expected to be completed in the second quarter
of 1998.